This week, I speak with David Gardner, Co-Founder of The Motley Fool. We discuss his new book book “Rule Breaker Investing: How to Pick the Best Stocks of he Future and Build Lasting Wealth.”

We also discuss the the Rule Breaker framework — David’s checklist for spotting the kind of high-growth, category-defining companies (think early Amazon, Netflix, NVIDIA) that drive long-run portfolio returns — and the trade-offs versus more conservative approaches.  David’s podcast at the Fool, Rule Breaker Investing, has been going since 2015.

A list of his current reading/favorite books is here; A transcript of our conversation is available here Tuesday.

You can stream the full conversation on Apple Podcasts, Spotify, or Bloomberg.The video version is on YouTube.  The full archive of MiB episodes can be found here.

Be sure to check out our Masters in Business next week with Joe McLean, Managing Partner at MAI Capital Management, where he leads firm’s Sports & Entertainment division, serving 100s of pro athletes/entertainers across NBA, NFL, MLB, PGA + NASCAR. His path to finance runs directly through the locker room as a 4-year NCAA Division 1 player at U of Arizona. Dubbed the athlete’s “Money Whisperer” by the New York Times, he is known for his non-negotiable 60% savings mandate for clients.

Recently Authored:

Favorite Books

Books Barry mentioned

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•  AI Chatbots Know More About You Than You Realise: A handful of casual questions is enough for a chatbot to assemble a strikingly detailed profile of the user. The language we use is full of signals we don’t know we’re sending; AI has learnt to read them. (Straits Times)

• ‘It Beats Pitchfork Rebellions and the Guillotine’: Why These Super-Rich Americans Are Asking For Higher Taxes: As far as political protest goes, this was among the most civilized I have ever witnessed. The organizers did not make any noise beyond the idling truck covered in changing digital billboards. There were no chants on the sidewalks, no signs to leave behind as litter. The workers at the estate of billionaire Jeff Bezos looked with curiosity that quickly gave way to indifference as the visitors’ vehicle flipped through a three-minute slide deck mocking the Amazon founder: “Congratulations! You won capitalism! Now pay your damn taxes. It beats pitchfork rebellions and the guillotine” — a very civilized class of protesters. (Time) see also What I Learned About Billionaires at Jeff Bezos’s Private Retreat: For the richest men on Earth, everything is free and nothing matters. (The Atlantic)

• The Man Who Invented the Future: The Widener family fortune was built on electricity — and on a founder who imagined the modern world before it arrived. Are we the conflicted heirs of the world according to Francis Bacon? (Hedgehog Review)

• The Great Ozempic Experiment: Online and in doctors’ offices, people are finding that GLP-1s may help with everything from arthritis to addiction to migraines.It’s a new era of D.I.Y. medicine. Now the health establishment needs to catch up. GLP-1s may help with everything from arthritis to addiction — and we’re all the test subjects. (New York Times)

• 10 Things That Matter in AI Right Now: MIT Tech Review’s take on the ten AI trends, tools, and debates that actually matter heading into the rest of 2026. (MIT Technology Review see also The Warehouse, in Plain Sight: How the American warehouse — now being repurposed by DHS — became invisible infrastructure hiding in plain sight. That concrete box off the freeway wasn’t designed for storage so much as capture — of markets, workers, and, now, people detained by immigration agents. It’s a disappearing machine. We need to see it clearly. (Places)

• AI, Iran and the Gulf 101: Deutsche Bank’s primer on how AI investment, Iran policy, and Gulf capital fit together. (Deutsche Bank)

• It’s Been Quite the Year for Victoria Beckham: The Spice Girl turned fashion designer clawed her way out of debt and posted record profits. Family troubles aren’t standing in the way of her success. (WSJ)

• OnlyFans Model, 20, Made $43 Million Last Year. To Her, It Doesn’t Conflict with Christian Values: ‘The Lord’s Very Forgiving’ (Exclusive) At just 20 years old, Sophie Rain is making a life-changing yearly income of over $43 million — and sees no contradiction with her faith. (People)

• The invention of the soul: Humans weren’t given souls by God or genes. We made them ourselves with language – turning sentience into something sacred (Aeon) see also You’ve lived this life before: The mystical insight came to Nietzsche like a lightning flash: time eternally recurs – and life must be lived accordingly (Aeon)

• Marilyn Monroe’s Nudes Made Her Notorious. “Surprisingly Good” Acting Made Her a Star. In an exclusive excerpt from their new book, The Marilyn Monroe Century: From Norma Jeane to Icon―A Story in Photographs, John Miller and Mark A. Fortin trace the icon’s meteoric rise from scandal to stardom. Plus, a selection of previously unpublished photographs by Bruno Bernard. (Vanuty Fair)

Be sure to check out our Masters in Business interview this weekend with David Gardner, cofounder of The Motley Fool in 1993 (with his brother Tom Gardner). Originally launched as a print investment newsletter based on the idea that ordinary investors could beat Wall St., it gained traction when promoted on America Online (AOL) in 1994; it soon became a major presence on AOL and then Fool.com. His latest book is “Rule Breaker Investing: How to Pick the Best Stocks of the Future and Build Lasting Wealth.”

There’s never been an investment like the investment in railroads

Source: @paulg

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~~~

To learn how these reads are assembled each day, please see this.

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The stock market is hitting all-time highs, even as consumer sentiment hits all-time lows.

Is this a paradox?

Hardly.

The confusion stems from people who imagine market prices move off their personal economic experiences (as well as broader consumer sentiment). This is a false belief, easily disproven with a few data points and charts.

“This market makes no sense!”

A similar anomaly occurred during the pandemic. The S&P 500 kept making new all-time highs even as your local economy was faltering. Stores were closing, unemployment was surging, and airlines, hotels, and retailers were going bust.

New all-time highs seemingly ignored all of that. The explanation for this was simple, albeit wonky: Your personal economy is local, visible, and “availability-weighted” while the S&P 500 is global, but more importantly, market-cap weighted. 1

Today’s anomaly is similar.

As it turns out, psychology matters – just not your psychology. When we look at the ownership structure of assets in the United States, we see a very lopsided distribution. The top 1% owns half of all equities in the US; the top 10% owns 87%.

How much do you think the sentiment of the bottom 90% of the population, by net worth – they own just 13% of stocks – matters to the stock market?

Not very much.

A related point is the so-called Wealth Effect – it’s mostly nonsense, a case of correlation, not causation.2

The lopsided distribution of equity ownership in the country explains a lot of things; it is especially useful when explaining why sentiment at all-time lows does not seem to have much effect on markets.

What is impacting overall sentiment? Consider:

Inflation had dropped from 9% down to 2.5ish%, mostly under control – until the tariffs began to drive prices higher. 3

Iran War took most Americans by surprise; the reasons were not explained to the country, and so it remains unpopular. (Sending gas prices up $1 a gallon is not popular either).

Home prices remain high, with starter homes out of reach for most young people.

Measurement issues are a very real problem when it comes to identifying sentiment. The same problem exists in polling and other measures of intention and psychology.

The K-Shaped Economy has led to a majority of Americans not feeling optimistic about the current or future economic situations.

That K is a real phenomenon: The wealthy are doing better than ever – their biggest assets are real estate (ATHs), stocks (ATHs) and businesses (awash in PE money) are all doing great; Oh, and thanks for renewing the 2016 TCJA giant tax cuts for another decade.

We see this manifest in spending patterns also. About half of all retail sales are driven by the top 10% of consumers.4

~~~

It’s never quite as clear-cut as some claim – extreme rallying cries are great clickbait but hardly explain the complexities and nuances of the markets.

Yes, markets have been democratized (somewhat) over the past 50 years. But ownership is still primarily held by the wealthy. If you want sentiment to match market prices, try surveying billionaires and millionaires instead of ordinary people…

See also:
If America’s So Rich, How’d It Get So Sad? (Derek Thompson Apr 23, 2026)

Why the Stock Market Makes No Sense Right Now (New York Times, April 18, 2026)

Aftermath: Wall Street Is Lying to Itself (Prospect, April 23, 2026)

Previously:
Revisiting the Wealth Effect (October 23, 2025)

The Probability Machine (August 28, 2025)

The K-Shaped Recovery (September 4, 2020)

Maybe Mr. Market Is Rational After All… (August 7, 2020)

Wealth Effect Rumors Have Been Greatly Exaggerated (November 16, 2010)

Why the Treasury Secretary is Wrong on the Wealth Effect of Stocks vs Real Estate (October 26, 2006

UPDATE: April 24, 2026  10:00 am  

Latest U Mich Comsumer Sentiment Final April data

Source: U Mich

__________

1. The “availability heuristic” is our tendency to use information that comes to mind quickly and easily as opposed to the more nuanced, complex real world.

Wikipedia: “mental shortcut that relies on immediate examples that come to a given person’s mind when evaluating a specific topic, concept, method, or decision. This heuristic, operating on the notion that, if something can be quickly recalled, it must be important, or at least more important than alternative solutions not as readily recalled.”

2. There IS a real wealth effect with housing – the bottom 90% own 87% of the houses – pretty close to what you expect. But even those numbers are skewed; the lower half of households – AKA renters – only own 10% of the housing stock. So the wealth effect of housing real, but somewhat muted to the 100 million owners of their primary residences.

3. The media has a big impact on sentiment, and except for the Artemis II mission, the headlines have been mostly negative. Other factors be weighing on sentiment include Home prices, health care costs, Ukraine War, ICE murders, Epstein files, etc.

4.Bloomberg: “A Moody’s Analytics analysis of Fed data found the top 10% of earners were responsible for about 49.2% of total U.S. consumer spending in Q2 2025, the highest share in data going back to 1989.” (September 16, 2025)

5. Markets trade off of profits and growth which often have nothing to do with your personal economic situation.

The post All Time Highs (SP500) versus All Time Lows (Consumer Sentiment) appeared first on The Big Picture.

• It Was on Your Table Every Morning Growing Up. It’s Dying Before Our Eyes: Florida’s orange industry — long a breakfast-table staple — is collapsing, and no one in the state wants to face it.  Deep in desiccated Southern groves, the powerhouse of American citrus is suffering a brutal, unrelenting decline. No one wants to face what that means. Who Killed the Florida Orange? (Slate)

• Private Assets May Be Coming to Your 401(k). You Should Know the Risks.: Tara Siegel Bernard on alternative investments — private credit, private equity, crypto — about to start appearing on 401(k) menus, with risks that aren’t fully priced in.  (New York Times) see also U.S. Officials Try to Get a Grip on Risks Bubbling Inside Private Credit: The SEC is sending sweeping information requests to private-credit managers, targeting valuations, loan selection, and other practices. (Wall Street Journal)

• The Billionaire Math Geek Who Turned AI Into a Money-Printing Machine: Alex Gerko’s XTX Markets uses Nvidia chips and deep learning to forecast price moves — and print money at scale. (Wall Street Journal)

• 6 Tax Tips You Should Start Thinking About Now: Simple questions to ask year-round that can help you keep more of what you earn. (Morningstar)

• Warfare in a Box: Executive Outcomes and the making of the modern mercenary: How drone warfare commoditized killing at scale. The moral distance is now shorter and the supply chain is global.  Placing profit over ideology, modern mercenaries are as at home in the boardroom as on the frontline. Their companies are registered in the appropriate tax haven, like the City of London, and operate through shell firms. (The Baffler)

• Where Did the Middle East Go? Satellite Imaging in the Fog of War: Planet Labs’ decision to restrict Middle East satellite imagery is raising questions within a multibillion-dollar industry about commercial independence and global accountability. (Businessweek) see also Putin’s High-Tech Russian Submarines Goad NATO Deep Below the Atlantic: The undersea cable game heats up — and NATO is still catching up to how much of the modern economy literally runs through cables at the bottom of the ocean. NATO is fighting back against Russia’s submarine threat in cat-and-mouse games reminiscent of the Cold War.  (Bloomberg)

• Richard Feynman’s Notes For Self-Education: The great physicist’s approach to learning was as elegant as his physics — curiosity-driven, self-directed, and gloriously undisciplined. A masterclass in how to stay intellectually alive.  (Noted)

• Rocket Science for Monkeys: Early disquisitions on language frequently puzzled over the question of how rational speech could have emerged from the non-speech of animal calls and cries, and Enlightenment treatises on the origins of speech sometimes proposed that iconic words might have been a halfway house.A review of recent work on animal communication and the origins of language. (London Review of Books) 

• MAGA Is Increasingly Convinced the Trump Assassination Attempt Was Staged: Conspiracy theories about the Butler, Pennsylvania, shooting have ramped up in recent weeks as once steadfast Trump supporters turn on the president. As intra-MAGA criticism of Trump grows, the “it was staged” conspiracy is gaining real traction inside the movement. (Wired)

• The Interview Violence Shaped Charlize Theron. It Doesn’t Define Her: Lulu Garcia-Navarro’s long-form interview for The Interview. (New York Times)

Be sure to check out our Masters in Business interview this weekend with David Gardner, cofounder of The Motley Fool in 1993 (with his brother Tom Gardner). Originally launched as a print investment newsletter based on the idea that ordinary investors could beat Wall St., it gained traction when promoted on America Online (AOL) in 1994; it soon became a major presence on AOL and then Fool.com. His latest book is “Rule Breaker Investing: How to Pick the Best Stocks of the Future and Build Lasting Wealth.”

Job Market Gets Tougher for College Grads as Competition and AI Rise

Source: Bloomberg

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For the past 30 years, I have been sharing my ideas on investing, markets, the economy, policy, and related topics. Online, in public, no hold barred; writing for a broad audience invites comments, criticism, and general interaction.

So it was no surprise that when Twitter came along, I jumped in (Thanks, Howard!). It was an amazing technology that gave you access to awesome people you otherwise would not have met; it enabled cool interactions with readers. It became a community of like-minded individuals across a variety of topics. For me, this included everything from markets and investing, economic analysis, and behavioral finance to cosmology and collectible cars. Before Chart Kid Matt, many of the most-liked charts seen on The Big Picture were originally found on Twitter.

My partner Josh, always ahead of the curve, saw the writing on the wall and tapped out in 2020. I hadn’t noticed the slow bleed on the site until I was hacked in July 2023. Someone took control of the account until Bloomberg helped me get it back 3 months later. Nadig warned mw I wouldn’t recognize it. The site had changed so radically over those three months that it was hard to wrap my head around it.1

Trying to scale and monetize the site only led to a change for the worse; new ownership accelerated the collapse. Today, there is very little engagement, too many bots, and endless trolls;2  constant fake versions of myself and impersonations 3 of my colleagues have revealed how little the site cares about the security and safety of its users.4  What could have been a global town square morphed into something far more insidious. 5

And so it is with a heavy heart that I belatedly say farewell to X.

I’ll still allow the blog to auto-post; I’ll lurk on my favorite lists, and occasionally retweet others. But that’s it. You can find me here and on LinkedIn.

__________

1. Recently, a number of my favorite follows have headed for the exits; EFF was merely the latest.

2. Social media fraud channels contributed to 56% of all crypto scam cases in 2025, led by Telegram, X, and Instagram; AI-generated deepfake scams rose roughly 700%; fake endorsements impersonating Musk accounted for 32% of social media scam attempts. (Source: CoinLaw) According to Medium, the most visible pattern of fraud is the stock-pick scam chain: a low-follower bot posts a reply with replies disabled, tags a “financial expert” account using a stock photo and a generic handle ending in a number, and that account pushes penny-stock picks.

3. New ownership made everything worse: Paid verification inverted the old signal: a blue check now correlates positively, not negatively, with scam risk, and the algorithmic boost for paying accounts means scam replies surface above legitimate ones. (via Claude)

4. AI has lowered the cost of producing convincing content and increased variability across a botnet, making pattern-based takedowns harder, while “reply-and-block” tactics let bots register engagement and then suppress the original poster’s ranking. (via Claude)

5. It’ll be interesting to see the Harvard Business School case study of how to light $38 billion on fire.

The post Farewell, Twitter appeared first on The Big Picture.

• Women get worse investment advice: There are plenty of differences between men and women; how they invest their money, how they deal with risk, etc. But given the same circumstances and risk preferences, men and women should get the same advice from their financial advisers. Guess what? That doesn’t happen. New research confirms that women systematically receive lower-quality investment advice than men. (Klement on Investing)

• Has the Stock Market Really Been More Volatile Than Usual This Year? For most investors, stock market volatility is something to endure, not act upon. Dan Lefkovitz runs the numbers against the vibes. The vibes, as usual, are losing. (Morningstar)

• Will China get richer before it gets much, much smaller?  China does look likely to age more rapidly than many counterparts. According to the United Nations Department of Economic and Social Affairs Population Division, the share of its population aged 15-64 years old peaked in 2012 at 73 per cent (it is hovering now at around 70 per cent) but is set to plunge below half in the next fifty years — taking it lower than equivalent shares for the US, Europe and even Japan. (Financial Times)

• The Father-Daughter Showdown That Shook an $18 Trillion Investing Empire: Before her winning streak at Fidelity, Abby Johnson had to beat back the doubts of her rivals, and her father, too. The Abby-and-Ned Johnson succession drama at Fidelity — the sort of dynastic asset-management intrigue you rarely get to see in public. (Wall Street Journal)

• Fed Chair Apprentice: three policy themes: Fed independence, Warsh’s theory of inflation, and financial deregulation. Claudia Sahm on Kevin Warsh’s Senate confirmation heaxring for Fed Chair. (Stay-At-Home Macro)

• Helium Is Hard to Replace: Helium is produced as a byproduct of natural gas extraction. It collects in the same underground pockets that natural gas collects in. Qatar is responsible for roughly 1/3rd of the world’s supply of helium, which was formerly transported through the Strait of Hormuz in specialized containers. Thanks to the closure of the strait, helium prices have spiked, suppliers are declaring force majeure, and businesses are scrambling to deal with looming shortages. (Construction Physics)

• Why thinking hard feels bad: the emotional root of deliberation: When an intuitive answer to a problem feels slightly off, the human brain generates an uncomfortable state known as doubt. This negative feeling acts as an internal alarm bell that prompts individuals to abandon simple mental shortcuts and engage in heavy, analytical thinking. The new findings detailing this emotional trigger were published in Thinking & Reasoning. New research on why System 2 is exhausting — and why that cost is not a bug but a feature of how attention allocates itself. (PsyPost)

• The Ancient Weapons Active in Your Immune System Today. Dozens of new discoveries reveal that defenses evolved by bacteria and viruses billions of years ago still define our own innate immune system. Dozens of new discoveries reveal that defenses evolved by bacteria and viruses billions of years ago still define our own innate immune system. (Quanta Magazine)

• Searching for the ‘Smoking Gun’ in US Pedestrian Deaths: Why did American streets get so deadly for those on foot or bikes? A leading transportation safety researcher sees some surprising factors behind the crisis. (CityLab)

• ‘Wagyu’ Used to Guarantee Quality Beef. What Are You Paying for Today?: The term has been stretched to near-meaninglessness on American menus — here’s how to tell A5 from marketing. (New York Times)

Be sure to check out our Masters in Business interview this weekend with David Gardner, cofounder of The Motley Fool in 1993 (with his brother Tom Gardner). Originally launched as a print investment newsletter based on the idea that ordinary investors could beat Wall St., it gained traction when promoted on America Online (AOL) in 1994; it soon became a major presence on AOL and then Fool.com. His latest book is “Rule Breaker Investing: How to Pick the Best Stocks of the Future and Build Lasting Wealth.”

What is the price of oil—the real one?

Source: Bloomberg

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At The Money: Looking Beyond Market Cap Weighted Indexes (April 22, 2026)

Cap weighted indexes have come to dominate ETFs. Is it time for investors to consider a strategy based on fundamental weightings, such as profits or revenue growth?

Full transcript below.

~~~

About this week’s guest:

Rob Arnott is known as the “godfather of smart beta” and founder of Research Affiliates, which oversees strategies for over $100 billion in assets.

For more info, see:

Professional Bio

Masters in Business

LinkedIn

~~~

Find all of the previous At the Money episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg. And find the entire musical playlist of all the songs I have used on At the Money on Spotify

TRANSCRIPT: Rob Arnott

Intro:
Boy, you’re gonna carry that weight
Carry that weight a long time
Boy, you’re gonna carry that weight
Carry that weight a long time

Barry Ritholtz:  Big, broad market-cap-weighted indexes, like the S&P 500, have dominated investor inflows and performance really since the financial crisis. But lately, critics of cap weighting point out that increased market concentration of just a handful of stocks — AKA the Magnificent Seven — is increasing risks for investors. What should a portfolio manager do about this? Well, to help us unpack all of this and what it means for your portfolio, let’s bring in Rob Arnott, founder of Research Affiliates and a longstanding critic of market cap weighted indexes. RAFI runs a variety of fundamental indexes that are based on things outside of cap weighting. Let’s jump right into it. So, Rob, you’ve spent decades challenging cap weighted indexes as simply just owning more of what just went up. Frame the case for alternative weighting — regardless of what it is, equal weight, fundamental, whatever — versus traditional cap weighted indices.

Rob Arnott:  Let’s play a thought experiment. Suppose I came to you and said, I have a brilliant strategy. You’re gonna love it. This strategy involves watching companies and waiting until their market value gets above a certain threshold and buying them. On average, I’m buying them when they’re up 75% relative to the market in the last year and trading at twice the market multiple. Some of these go on to achieve great success, some don’t. And our sell discipline is very simple: when the market cap falls below a certain threshold, we’re gonna sell them, and we’ll sell them at, on average, half the market multiple, at a loss of about 7,000 basis points relative to the market. What do you think?

Barry Ritholtz:  Hard pass. Hard pass.

Rob Arnott:  What I’ve just described is the active side of indexing. I’ve got a monograph coming out shortly — CFA Institute Research Foundation — called The Active Side of Indexing. Indexing is described as passive, but if it has 5% turnover, the 95% is passive — it moves up and down with the market movements and it’s blissfully ignorant and indifferent to what’s going on in the economy or the companies or whatever it is. Really passive. The 5% looks like a hypergrowth manager on crystal meth. The weighting is also an issue. Why? If I came to you and said, I’ve got a brilliant idea, I’m gonna weight stocks proportional to their price — so the more expensive they are, the bigger its weight in your portfolio — don’t you just love it?

Barry Ritholtz:  So let’s dive into that a little bit. Anybody who’s an indexer watches in horror every time something gets added to the index, and then there’s this grace period where the stock runs up and it’s even more expensive when it gets added. It’s even worse when there’s a deletion — they announce a deletion and the stocks plummet. Anticipating, front-running the sell — is this just a hidden cost?

Rob Arnott:  It’s legal front-running.

Barry Ritholtz:  I mean, if you’re gonna tell me — hey, we have $2 trillion in this index, we’re gonna sell this position in a month — why would you hold onto that?

Rob Arnott:  Exactly. The S&P’s a beautiful example. The S&P is now big enough that the stocks held in S&P index funds represent roughly 25% of the total market cap of every stock that’s in the index — not each individual ETF or index fund, but aggregated. And that means that, to the extent that indexers are obsessed with having no tracking error with matching the index, they’re gonna buy that stock at the same price that it’s added to the index, which means a market-on-close price. I will pay whatever the price is at the close on the day that it’s added to the index. Now, if you’re a hedge fund, you’re gonna wanna accommodate that and help out by buying it early and then flipping it to the indexers. And that’s been going on for a quarter century or more. I documented the pattern back in 1986 in an article called “S&P Additions and Deletions: A Market Anomaly.” And I heard anecdotally that that article was used in part to lobby S&P to pre-announce so that the index funds wouldn’t get nailed by the index changes. Now they gotta buy this and sell that, and they’re buying it higher and selling this lower, and so they have an automatic drag. The magnitude of that drag is actually very simple. If you could transact at the price at which S&P announced the decision, not the price at which it becomes effective, you would add 15 basis points per annum. So the indexes lose 15 basis points just from trading costs, with 5% annual turnover or less — three to 5% annual turnover. That’s equivalent to three to 500 basis points per stock per trade. That’s a heavy trading cost, but it’s because it’s a crowded space. It’s a herd of elephants trying to go through a single revolving door.

Barry Ritholtz:  Let’s talk about the flip-flop problem. Every time there’s an addition, something like 28% within a decade get dropped. And similarly, after there’s a deletion, almost half of those deletions rejoin the S&P, right, within a decade. What does this flip-flop do to performance?

Rob Arnott:  Well, it does what you would expect. When I did my little thought experiment describing a brilliant strategy, I was actually citing statistics from our flip-flops paper. On average, stocks that are added are added after 75 percentage points of outperformance. If they falter and are kicked back out, they’re removed at a 7,000 basis point loss. Now, if you gain 75 and lose 70, you aren’t back where you started — you’re down 50. And it’s worse than that, because you didn’t participate in the 75, you did participate in the down 70. The deletion flip-flops — stocks that are deleted and re-added — are even more dramatic. They underperform by 3,500 basis points, give or take, in the year before they’re dropped, and then they outperform by 180 percentage points. They roughly triple relative to the market before they’re added back in. So flip-flops are very, very costly, and none of this is disrespect to the index providers. This stuff has not been studied much until we took a deep dive into it. If you don’t know you have a problem, how are you gonna fix it? And the problem is big, but it’s on a very small part of the portfolio. It’s on the active side of indexing — the little sliver of active trading.

Barry Ritholtz:  Really, really interesting. So let’s talk about fixing it. You have been discussing for as long as I’ve known you — which is decades — economy-weighting indices rather than cap weighting or price weighting. Define what a fundamental economic weighting of an index is. What goes into that?

Rob Arnott:  Let’s suppose you want an index that studiously mirrors the economy instead of studiously mirroring the market. Well, you wouldn’t weight companies by market cap, you wouldn’t choose them based on market cap. Let’s choose them based on how big their business is. Well, how do you define that? How big are its sales? How big are its profits? How big is its net worth? Today we would go a step further and say, net worth adjusted for intangibles. How much does it distribute to shareholders in dividends and buybacks? Four different measures. You could argue endlessly about which is right, or you could simply say, I’m gonna take the average of the four weights. So Nvidia is a decent slug of total profits in the economy, but it’s not seven or 8% — not its market weight. It’s in the 2% range in terms of sales. It’s in the 2% range in terms of dividends or net worth. It rounds to a very, very small number. So you could argue, is it half a percent or 1% or 2%? Average those, and you’re gonna say it’s about one, one-and-a-half percent of the economy. Okay, that’s big enough to make the cut. We’re gonna include it, and we’ll include it at a one, one-and-a-half percent weight. Now, if you do that, what you’re doing is taking the frothy growth stocks — beloved and expected to grow fabulously — and down-weighting them to their current economic footprint. You’re taking the value stocks — the unloved, out-of-favor, cheap stocks — and you’re saying, let’s reweight those up to their economic footprint. So you wind up with a stark value tilt. And that means the sensible way to measure RAFI, the fundamental index, is to measure it against the value indexes. And that’s where it gets really interesting. Schwab and Invesco have ETFs and mutual funds, PIMCO has some ETFs tied to RAFI — the fundamental index — and collectively those three organizations have over a hundred billion dollars in RAFI assets. So this is not new, it’s not small. We introduced the idea about 20 years ago. If you compare it with the cap weighted value indexes, you get an astonishing result. On average, RAFI beats the cap weighted value indexes by two to 2.5% per year compounded, and does so with variability.

Barry Ritholtz:  How does that tracking error compare to the cap weighted growth indexes?

Rob Arnott:  The growth indexes have outperformed hugely, but they’ve outperformed by dint of becoming more and more expensive relative to fundamentals. The underlying fundamentals of the value indexes — in terms of sales, profits, book value, dividends — have grown roughly pari passu with growth portfolios this century to date, which shocks most people, because the relative performance has been about two to 3% per annum for a quarter century. And the notion that, wow, this has beat this now by — call it something on the order of two to one, 10,000 basis points of outperformance — but the underlying fundamentals have grown in parallel.

Barry Ritholtz:  Let me re-ask that question in a different way, which is: if we know there’s a disadvantage to cap weighted indexes, well isn’t the obvious and simple alternative just equal weight? Why not just go equal weight?

Rob Arnott:  Equal weighting is a perfectly legitimate way to create a portfolio. It’s gonna have a stark small cap tilt, because a tiny company will get the same weight as Nvidia or ExxonMobil. It will have a stark value bias, because companies that are trading at low multiples will get the same weight as stocks trading at high multiples. It will have a rebalancing alpha. If a stock soars, you’re gonna trim it. If it tumbles, you’re gonna top it up. The only Achilles heel that I think matters for equal weighting is: equal weighting what stocks? Equal weighting the S&P, for instance — you’re going to be equal weighting a portfolio that includes companies that have soared into being big enough to be added. You’re gonna be leaving out companies that have performed badly enough to be really cheap, and the result is that you’re going to have a portfolio that’s biased towards higher multiple stocks. So, interestingly, equal weighting over long periods of time performs about the same as fundamental index, which we launched 20 years ago — but with much more variability.

Barry Ritholtz:  Got it. That makes a lot of sense. So if we’re looking at a fundamental-driven index in a period where mega caps are dominating or growth is dominating, how do you ride that out? Up until last year, it felt like if you weren’t overweight the Mag Seven, you were underperforming — until we learned, last year, five of the seven Mag Seven underperformed in 2025.

Rob Arnott:  Yeah, yeah. Shocking. The thing that I find interesting here is, we introduced fundamental index in 2005 — live strategies at PIMCO go back to mid-2005, at Invesco go back to late 2005. So it’s live, it’s been investable for 20 years. The thing that’s interesting is, just two years later, in 2007, value crested, and it underperformed ferociously until summer of 2020. Since then it’s been bottom-bouncing — outperforming handily, then crashing, outperforming, then crashing, bottom-bouncing. And so at the end of 2025, value had underperformed — Russell Value had underperformed the Russell 1000 peak-to-trough by 3,800 basis points. Wow. You were 38% poorer than a simple Russell or S&P index investor. That’s a horrific headwind for anything with a value tilt. RAFI Fundamental Index has a rebalancing alpha: a stock soars and its fundamentals don’t validate that, then you’re gonna say, thanks for the nice high price, I’m gonna trim it. If it tanks and the fundamentals don’t falter, you’re gonna say, thanks for the bargain, I’m gonna top it up.

Barry Ritholtz:  So let’s talk a little more about that rebalancing strategy. What sort of alpha does that create? How does that drive returns?

Rob Arnott:  The best way to measure the performance of RAFI is against the cap weighted value indexes. Relative to the value indexes — this is live — the RAFI indexes have beat the cap weighted value indexes by a little over 2% per year compounded. Now, with compounding, that’s a big number. That means that you’re over 50% richer than you were with a cap weighted value index after 20 years. So that’s important. Now the other thing that’s interesting is, relative to the value indexes, the tracking error is pretty tight. It’s about two-and-a-half percent variability in that 2% value add, which means that RAFI has beat cap weighted value in most years when value’s been winning and in most years when value’s been losing. It doesn’t matter. RAFI has been winning about three out of every four years. And this is live. This is not a back test.

Barry Ritholtz:  So, to wrap up: investors who are concerned about market concentration, concerned about valuation, but a little skittish on the underperformance that value has created in a cap weighted format, should consider a fundamental index. It trades differently than both growth and value, and has a better risk profile and a better valuation profile. I’m Barry Ritholtz. You are listening to Bloomberg’s At the Money.

The post At the Money: Looking Beyond Market Cap Weighted Indexes appeared first on The Big Picture.

• What Do You Believe About Investing? Asking questions about what an investor believes, or what their investment philosophy is, can increasingly feel like a mundane tick box exercise quickly covered by some generic, unfalsifiable answers. This really shouldn’t be the case. Investment beliefs are the foundation to any approach and will likely define its success or failure. An underwhelming process supported by some robust beliefs will likely do just fine, whereas flawed beliefs won’t be saved by a good process. The investment beliefs we hold should underpin any decision we make, without them it becomes incredibly difficult to make coherent choices – particularly dur ing spells of market stress. (Behavioural Investment)

• The Trade: The war produced a market mechanism. Someone knew how it worked before the public did. Every announcement moved markets and every extension of a deadline crashed oil. Then escalation would push it back up and the cycle would repeat. This happened seven times in fifty-two days. (The Omission)

• Has the Stock Market Really Been More Volatile Than Usual This Year? For most investors, stock market volatility is something to endure, not act upon. (Morningstar)

• Tim Cook Was Very, Very Good at Making Money: How Cook turned Jobs’s creation into a $4 trillion machine. Whatever you think of him as a product visionary, the operator’s ledger is unassailable. (New York Times)

• Breaking cover: the future of the business book: Authors are experimenting with new technology and formats to better communicate ideas. Business books are being replaced by podcasts, Substacks, and LinkedIn posts. The 300-page hardback is becoming a vanity artifact, not a vehicle for actual ideas.  (Financial Times)

• San Diego Now Has So Much Water That It’s Selling It: Once a drought poster child, the California city now generates enough water to rescue parched states like Arizona—and brew beer from recycled sewage  (Wall Street Journal)

• You Should Be More Freaked Out by Shingles: The viral infection leaves millions with chronic pain, increased stroke risk, and lifelong nerve damage—yet vaccination rates remain dangerously low. (Wired)

• Scientists identify five ages of the human brain over a lifetime: Four major turning points around ages nine, 32, 66 and 83 create five broad eras of neural wiring over the average human lifespan. (University of Cambridge)

• Ukraine Has Finally Given Up on Trump: Kyiv has started hitting Russian oil-export facilities — a sign it’s no longer waiting on Washington. (The Atlantic)

• The man who saw the future: the legacy of cultural theorist Mark Fisher: Capitalist Realism: Is There No Alternative? was published in 2009 to critical silence—now a film revisits Mark Fisher’s prescient legacy. Touching on everything from late-stage capitalism to Adele, the work of the late writer is proving increasingly influential. Now a documentary on him is looking to live up to his ideals. Touching on everything from late-stage capitalism to Adele, the work of the late writer is proving increasingly influential. Now a documentary on him is looking to live up to his ideals. (The Guardian)

Be sure to check out our Masters in Business this week with Philippe Bouchaud, co‑founder, chair & head of research/chief scientist at Capital Fund Management (CFM). The $20 billion firm specializes in managed futures. He began his career in theoretical physics, was awarded the IBM Young Scientist Prize (1990) and the C.N.R.S. Silver Medal (1996), and has published over 300 scientific papers and several books in physics and finance.

Renewables overtook coal power in 2025 for the first time in over 100 years

Source: @nicolasfulghum

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Everybody’s attention has been focused on the Iran War,1 but I want to draw your attention back to a different war — the prior Trade War.

Eighteen months ago, the Trump administration was elected to its second term. After November 2024, there was a lot of noise about what people thought would happen. When Liberation Day rolled around in 2025, many observers, including long-standing Wall Street supporters, were shocked.

The first tariffs were on Canada and Mexico, voiding the deal the president himself had renegotiated; then came 100% tariffs on China, then a long list of other tariffs.

There was a problem with this executive-branch muscle-flexing: It was (obviously) unconstitutional. Article I, Section 8 of the U.S. Constitution specifically delegates the power to lay and collect duties, taxes, and excises to Congress.2 This was an unambiguously executive-branch overreach—arguably done in bad faith.3

The U.S. Court of International Trade found the tariffs unconstitutional; the Federal Circuit Court of Appeals (en banc, with every judge in the district participating) overwhelmingly affirmed that finding. It was fast-tracked to the Supreme Court, which ruled 6–3 against the administration.4

The President, when pushing the tariffs, promised four things: 1) Creation of industrial jobs, 2) Lower inflation, 3) Reduction of the trade deficit,  and 4) Reduction in the federal budget deficit.

None of those things happened.

All of them are now worse than before the tariffs were introduced (before the Iran assault began).

Making it worse was the sheer chaos of how the policy was implemented. According to the Cato Institute, there were 50 separate reversals, new policies, changes, pauses, and exemptions (traders called it “TACO”). The chaos froze CFOs and CEOs in place. They stopped hiring. They stopped building new factories and plants. They cut capital expenditures.  “Until we know what the policy is, how can we commit hundreds of millions (or billions) of dollars?”

As the chart at top shows, only a few agreements were actually negotiated; normally, trade agreements take years to be hammered out, especially when more than two parties are involved. But even that small handful is now void. No counterparty is going to stick with promises based on a policy the highest court in the land has declared unconstitutional.

But what about those promised benefits of the Tariffs over the year it was in effect? Let’s consider the data, to see how the reasons for implementing tariffs have fared:

Employment: roughly 100,000 manufacturing jobs were lost over the past year:

Inflation: As soon as the IEEPA tariffs were announced on Canada and Mexico, prices shot up substantially. After April 2nd, prices continued higher. Federal Reserve Chair Jay Powell specifically said that part of the reason the Fed is on hold is the higher prices consumers are paying because of tariffs.

In fact, about 90% of companies that import or retail goods said they were forced to raise prices because of tariffs. At the same time, about 75% of those companies said their margins were compressed.

Trade deficit: Reached an all-time high. The promised reduction of U.S. imports never happened, and angry allies boycotted U.S. goods.

Budget Deficit: The craziest data point of the whole tariff episode: we collected about $156 billion in tariff revenue, but we already owe back roughly $166 billion—and that figure is estimated to grow to close to $200 billion by 2029. How is that possible?

The law is that if you take money that isn’t yours—money you’re not entitled to, either legally or constitutionally — when you eventually lose that litigation, you don’t just have to return that money; you must return that money plus interest.

~~~

~~~

Tariffs were the signature economic policy of Trump’s second term; he not only campaigned on them (the 10% universal tariff floor, 60%+ on Chinese goods, reciprocal tariffs), but also insisted that the revenue source would fund tax cuts and close the deficit, create manufacturing jobs, end the trade deficit, and reduce inflation.

None of the promised benefits occurred over the year when tariffs were in effect. The data shows the exact opposite happened.

This did not come as a surprise to students of economic history. We have studied the Tariff regime in the 1930s, which more or less had the exact same results. They may not have caused the Great Depression, but they certainly made it much worse.

After losing the SCOTUS case, the president lashed out with a different series of tariffs. CATO, the conservative think tank in DC,  responded by observing that the New Tariffs Are Just as Illegal as the Old Ones.5 Look for those to be overturned eventually, also.6

I suspect the war in Iran prevented us from fully digesting what it means for the Tariffs to be overturned.7 That will come about eventually…

See also:
Trump Administration to Begin Refunding $166 Billion in Tariffs (NY Times, April 20, 2026)

Businesses start applying for US tariff refunds (Semafor, April 20 2026)

Section 122 Is an Anachronism, Not a License for New Tariffs (CATO, April 14, 2026)

Previously:
Winners of SCOTUS Decision Striking Down Tariffs (February 20, 2026)

IEEPA Tariff Ruling’s Losers (February 23, 2026)

IEEPA Tariffs Update (January 27, 2026)

It’s Tariff Week! * (January 12, 2026)

Tariffs Likely To Be Overturned (November 5, 2025)

Might Tariffs Get “Overturned”? (July 31, 2025)

The Muted Impact of Tariffs on Inflation So Far (July 17, 2025)

Are Tariffs a New US VAT Tax? (March 31, 2025)

MiB: Special Edition: Neal Katyal on Challenging Trump’s Global Tariffs (September 3, 2025)

Neal Katyal on Challenging Trump’s Global Tariffs (September 8, 2025)

Which States Could Suffer the Most From Trade War Tariffs? (September 16, 2019)

__________

1. Whether it was authorized by Congress or not, ~10 weeks later, with three carrier groups, and 100,000 troops, countless missiles, drones and bombs, it is hard to call this anything other than a “War.”

2, Article I, Section 8, Enumerated Powers:

“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.”

The same issue exists with spending money appropriated by Congress as well.

3. In his first term, with a less pliable House Speaker and a more assertive legislative branch, the administration’s desire to use tariffs as a negotiation tool had been informally rejected by Congress.

4. An embarrassing dissent opinion came from Kavanaugh, joined by Alito and Thomas. (See this for more)

5. SCOTUS has given POTUS the ability to enact unconstitutional actions for about a year at a time. I wish Justice Roberts understood that “Justice delayed is justice denied.”

6. Hopefully, the judicial system won’t take another year to locate and constitution to figure out what it actually says…7. “Why are so obsessed with Tariffs?” a few emailers have asked. I am reminded of similar emails pre-GFC: “Why do you care so much about Derivatives and CDS?

7. That too, requires Congressional approval, which may or may not be forthcoming. You may be detecting a pattern here…

The post Tariff War, Post-SCOTUS Update appeared first on The Big Picture.

• 50 years. 50 facts. Indexing since 1976. As the golden anniversary of index fund investing approaches, the strategy is widely available across and within asset classes. Its appeal is evident: Indexing is an easy-to-understand, cost-effective strategy that can offer diversification, tax efficiency, and consistent performance relative to the results of the market. (Vanguard)

• The U.S. Is Manufacturing a Ton of Grid Batteries: Demand for energy storage is surging on the U.S. grid — and the country now has more than enough battery-making factories to meet it. Domestic energy-storage capacity is scaling fast as grid demand climbs: (Reasons To Be Cheerful) see also AI Is Using So Much Energy That Computing Firepower Is Running Out: The AI bubble has a physics problem: there aren’t enough megawatts on the grid. Compute-constrained means capex-constrained, which means the models won’t scale the way investors are pricing.  (Wall Street Journal)

• A Catechism for Robots: Kevin Kelly’s first draft FAQ dedicated to embodied AIs with persistent memories, dynamic learning, and a large dose of autonomy. (KK)

• Deals Hurt Returns. Thaler explains that auctions—especially when there are large numbers of bidders—can cause some participants to become emotional, to the point that they become undisciplined and end up bidding too much. The winners in these situations are thus “cursed” because they’re the ones who were willing to overpay the most and thus tend to be most disappointed. (HumbleDollar)

• Americans Have Always Hated Taxes. The 250-Year Battle Over Your Wallet. From the Whiskey Rebellion of the 1790s to Henry David Thoreau’s refusal to pay taxes to the 1,400 elected officials who signed an antitax pledge. Barron’s A look at the long history of American tax rebellions. (Barrons)

• How Austin’s stunning drop in rents explains housing in America: We finally have some good news about housing affordability. (Vox)

• Some of the Most Popular Graduate Degrees Don’t Pay Off Financially: New data shows the ROI on many master’s programs is worse than advertised.The report found advanced degrees in social work and psychology may have a zero to negative return, while medicine, law and pharmacy degrees show the highest return. (Washington Post)

• Why the Strait of Hormuz is a geological wonder: The continental collisions that created this narrow Mideast waterway also made it the most strategically important 21 miles on Earth. Geology is destiny, and Iran controls the choke point.  (National Geographic)

• ‘An Operational Success and a Huge Strategic Failure’ Perhaps the most apt description of Trump’s policy toward Iran is an “incoherent maze” — a phrase Pete Hegseth applied in 2016 to Barack Obama’s foreign policy. Lost in his own labyrinth, Trump granted sanctions relief to Iran even as he bombed it, and careened from threatening war crimes unless Iran opened the strait to suggesting that the strait wasn’t our concern. (NYTimes) see also The Mythology of Pete Hegseth: Garrett Graff dismantles the mythology Hegseth has built around himself as the Iran War’s cheerleader-in-chief. The alternate history he’s selling is dangerous. (Doomsday Scenario)

• NBA Playoffs: Ranking the Superstar Matchups We Want to See in the First Round: The giants who rule atop the game must go to war with one another, over and over again, until only one is left standing. There’s no room for error or quarter on the way to the pinnacle of the sport. The quality of each team still matters quite a bit but it’s the superstar matchups that will determine who will be featured on the biggest stage come the Finals…(Sports Illustrated)

Be sure to check out our Masters in Business this week with Philippe Bouchaud, co‑founder, chair & head of research/chief scientist at Capital Fund Management (CFM). The $20 billion firm specializes in managed futures. He began his career in theoretical physics, was awarded the IBM Young Scientist Prize (1990) and the C.N.R.S. Silver Medal (1996), and has published over 300 scientific papers and several books in physics and finance.

The gap between Wall Street (S&P 500) and Main Street (Consumer Sentiment) has never been this wide before. Wakl St ATH, Main St ATL

Source: @charliebilello

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